When it comes to mortgages and mortgage contracts, people seem to have more questions than answers; but if you ask the right questions, you will easy get all the answers you need.
Fine print of your mortgage contract #1
Breaking your contract
More often than not, if you decide that you want to break your mortgage contract, there is a penalty wherein you must pay three months’ interest or the interest rate differential (IRD). This penalty supposedly reflects the financial institution’s loss because you decided to break the contract.
The thing is, how do they determine what the IRD is? Many banks use an ambiguous enough language that allows them to calculate the IRD as they see fit, leaving clients no way to challenge the penalty. Make sure your lender uses a more indicative rate to calculate your payout penalty,
Fine print of your mortgage contract #2
Pay close attention to the fixed rate that would be offered to you if you have a variable-rate mortgage and decided to lock in. Some lenders offer their best rate for any fixed term that lasts as long as the time left on your existing mortgage. Others offers a set discount off their current posted rates, which can be as little as 1%. This can make a difference of up to $150 per month in interest.
Fine print of your mortgage contract #3
Compounding Interest Rate
The rate at which your interest is compounded affects how much you stand to pay. While most mortgages compound twice a year, some variable-rate mortgages are compounded on a monthly basis. This change, however subtle it may seem, adds about 5 basis points to your current rate (turning 5% into 5.05%, for example). Some banks make this standard practice, so be sure to inquire about it.
Fine print of your mortgage contract #4
An attractive feature, even with conditions, portability allows you to take your mortgage with you should you buy a new home. And if you currently have a sweet low interest rate, being able to keep it without being subject to higher mortgage rates can be most welcome.
Fine print of your mortgage contract #5
Transferring your mortgage
Some mortgages allow you to actually transfer your mortgage to the person buying your home. If the interest rate you have on your mortgage is lower than current market rates, this can be a very attractive incentive to homebuyers.
Although there is some risk to this strategy (you are on the hook to the lender if the new homeowners fail to pay), but it is an option people use and it may make sense in certain circumstances.
Fine print of your mortgage contract #6
Although most buyers do not have the luxury of being able to prepay their mortgages, it is an option available to most. But not all prepayment privileges are equal.
Some lenders allow you to prepay up to 25% of your original mortgage at any point during each 12-month period, while others allow you to prepay up to 10% but only once a year.
Fine print of your mortgage contract – read it
When it comes to mortgages, each borrower places different value on the varying features of a mortgage, but what is most important before committing to one is to ensure that you are well informed and ask the right questions.
If you’re ready to start searching for your perfect home, visit ComFree.com today.